Durbin Amendment Still Costing Us

First it was new bank fees. Now comes the other side of the fail pol­icy known as the “Durbin Amendment.”

The Durbin Amend­ment” was the most fought-over part of the Dodd-Frank bill when it was debated in the United States Sen­ate (Sen­a­tor Kohl and for­mer Sen­a­tor Fein­gold were both “Yeas”). The point of the amend­ment was to put a cap on the swipe fee con­sumers — and to extent retail­ers — pay when they use their credit, debit, or check card. Nor­mally, this fee is nom­i­nal. It’s some­thing banks pay to each other to assure that the cus­tomers’ money gets from one bank to the other.

But the Durbin Amend­ment has changed the equa­tion and the rev­enue stream for banks. By cap­ping the fee, banks and retail­ers who kicked the fee on to us, are look­ing for other ways to make up the rev­enue. Here’s what Her­itage wrote in March when the first of the dam­age the Durbin Amend­ment was wreck­ing on the free market:

Mean­while, The Wall Street Jour­nal reported Thurs­day that Bank of Amer­ica and Chase are eye­ing new check­ing account fees to make up for the $12.2 bil­lion that banks are esti­mated to have lost to the recent flood of regulation.

The Durbin Amend­ment took effect last Octo­ber 1 and lim­its the amount that banks can charge retail­ers to process debit card trans­ac­tions. Pop­u­lar among major retail­ers, the pro­vi­sion directed the Fed­eral Reserve to impose a price cap per debit trans­ac­tion, which was sub­se­quently set at 24 cents (on aver­age). Con­se­quently, retail­ers are pay­ing banks about 45 per­cent less than they did prior to the rule.

Not sur­pris­ingly, banks have sought new sources of rev­enue to make up for the losses—just as crit­ics of Durbin pre­dicted. For exam­ple, Heritage’s David John cor­rectly pre­dicted last year that, faced with sharply lower prof­its from debit card use, “card issuers are almost cer­tain to react by doing one or more of the fol­low­ing: impos­ing an annual fee on debit cards; rais­ing other fees that would be paid by con­sumers; or reduc­ing the inter­est rates paid on con­sumer deposits. While such a response would hurt all con­sumers, it would espe­cially dam­age those with mod­er­ate and lower incomes.”

Indus­try ana­lysts say the Durbin Amend­ment has “saved” con­sumers between $1 to $7 Bil­lion in fees. But where are the sav­ings being passed onto us? Not accord­ing to TIME mag­a­zine which is report­ing that banks are point­ing the fin­ger at retail­ers, retail­ers are point­ing at dis­trib­u­tors, and on and on.

Retail­ers say they don’t have it: A sur­vey of online mer­chants con­ducted recently by Inter­net Retailer found that since the swipe fee cap took effect, only around 15% say they’re pay­ing less, while nearly 18% say they’re actu­ally pay­ing more. Maybe it’s too soon, the site sug­gests, point­ing out that many mer­chants might not have renewed their con­tracts with the pro­cess­ing net­works that act as go-betweens for banks and retail­ers. Still, it cites an ana­lyst who says, “I would have expected Inter­net retail­ers to have appre­ci­ated a ben­e­fit from the rate reduction.”

The NRF [National Retail Fed­er­a­tion] says cus­tomers are los­ing out because the Fed didn’t adopt its sug­gested cap of between 7 and 12 cents per swipe. “We believe the num­bers for the big banks are too high,” senior vice pres­i­dent and gen­eral coun­sel Mal­lory Dun­can says in a recent state­ment. A lower cap, he adds, would mean “sig­nif­i­cantly greater sav­ings for mer­chants and their customers.”

But pay­ment proces­sors say it’s retail­ers, not them, hoard­ing the cash. “Indus­try data shows that the retail indus­try has already seen $2.8 bil­lion in sav­ings since the gov­ern­ment reg­u­la­tion on debit cards went into effect,” a trade group rep­re­sent­ing banks and proces­sors says on a web­site it set up called wheresmydebitdiscount.com.

This group, the Elec­tron­ics Pay­ment Coali­tion, says gas sta­tions alone are on pace to keep $1 bil­lion a year in sav­ings. They point to research show­ing that debit cards are the most pop­u­lar method of pay­ment at gas sta­tions. But some sta­tions have two prices — one for cash, one for cards — and don’t dis­tin­guish between credit cards, for which retail­ers are charged higher inter­change, and debit cards with their 24-cent cap.

As it’s being shown, the Durbin Amend­ment is not work­ing out so well. So far, the only thing I’m see­ing is an annual fee for hav­ing my check card with one bank and a monthly fee attached to another because I don’t keep an aver­age of $1,000 or more in it.

Yeah, it’s a check­ing account. If I wanted to keep a $1,000 or more in a bank account, it would be in my savings!

Durbin and sup­port­ers of his amend­ment told us that cap­ping the swipe fee would save us all money. So far, six months in there hasn’t been much of any sav­ings at all for con­sumers to see.